Wednesday, 10 February 2021

Questions (195)

Michael Creed

Question:

195. Deputy Michael Creed asked the Minister for Finance if he will clarify the situation regarding the restricted entitlement for pensioners to drawdown funding from private pension investments which appear to discriminate against persons that have a reduced rate of State pension relative to those that are in receipt of the full State pension (contributory); the reason the State, through its financial regulations, would make it more difficult on persons in receipt of a smaller income to withdraw funds from their own private pension investments than it is for those that have larger pensions and perhaps other income; and if he will make a statement on the matter. [6513/21]

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Written answers (Question to Finance)

I am assuming that the Deputy is referring for the requirement for certain holders of Approved Retirement Funds (ARFs) to retain a portion of their pension savings in an Approved Minimum Retirement Fund (AMRF).

I am advised by Revenue that Part 30 of the Taxes Consolidation Act 1997 (TCA) provides that an individual in a defined contribution pension savings arrangement has the option of putting the funds accumulated under the arrangement into an ARF on retirement, subject to conditions.

If, at the time of exercising an option, such an individual is under the age of 75 and does not meet the requirement in section 784C(4) TCA of having a minimum guaranteed pension income for life of €12,700 per annum, including a pension payable under the Social Welfare Consolidation Act 2005, then s/he is required under that section to set aside an amount of €63,500 (or the remainder of the pension fund if less than €63,500 after taking a retirement lump sum) by investing the amount in an AMRF or by the purchase of an annuity.

An AMRF automatically becomes an ARF when the owner either meets the guaranteed pension income requirement or attains the age of 75 years, and the amount of funds in the AMRF at that time can be drawn down at the owner’s discretion under ARF rules.

The primary purpose of the minimum guaranteed pension income condition applying to the ARF option is to ensure that, where this condition is not met, there is a capital nest egg available to the individual in older age. This condition has been in place since the inception of ARFs in 1999. At that time, the minimum income requirement was set at IR£10,000 which, on the introduction of the Euro in 2002, converted to its Euro equivalent of €12,700. This was significantly higher than the maximum rate of the contributory State pension payable in 1999 (IR£4,628, equivalent to €5,876) so there was no intended link between the State pension and the minimum guaranteed income limit.

However, the contributory State pension has more than doubled since 1999 while the minimum guaranteed pension test for ARF purposes remains at €12,700. As the Deputy indicates, the State Pension (Contributory) now exceeds €12,700 for individuals who have 48 or more annual contributions on average, which means such individuals do not have to put a portion of their pension savings into an AMRF. Also, the Revenue Pensions Manual states that Revenue will allow individuals who receive from the Department of Social Protection a Christmas bonus payment, a fuel allowance payment, household benefit package and/or telephone support allowance to take these payments into account for the purpose of the specified income requirement in section 784C TCA.

The Report of the Interdepartmental Pensions Reform and Taxation Group (IDPRTG) was recently published. The IDPRTG Report recommends a range of reforms to the ARF, including abolishing the AMRF requirement. The conclusions in the report represent a building block for a significant piece of long-term structural reform in the area of supplementary pension provision. In relation to the overall IDPRTG Report an implementatoin plan is currently being considered by that Group.

Question No. 196 answered with Question No. 187.